Grow Capital First

Discussion in 'Investment Strategy' started by MTR, 29th Apr, 2016.

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  1. radioactive

    radioactive Well-Known Member

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    Exactly. I was also convinced on capital growth but now I am very sceptical. With median wage around 70K and no income growth how is someone going to pay more to raise the price of a median-priced home in the inner ring? Of course, there will be some people who can afford to pay a premium that will maintain equilibrium, but in general, capital growth sounds way too speculative lacking sustainable fundamentals. Major cities already had its CG at par with global cities.Everyone likes to quote the real estate growth in past 25 years but if you look at 100 years history,there are several decades where real estate returns were negative and history can repeat!
     
    Last edited: 31st Jan, 2019
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  2. Omnidragon

    Omnidragon Well-Known Member

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    Well two things I guess. Picking stocks is like properties. Can often find things that double, triple etc. That said my fund wouldn’t put much in each stock because, as you say, it’s not the right risk profile. But personally I’m happy to put more in if I see something I like
     
  3. Omnidragon

    Omnidragon Well-Known Member

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    Not sure I’ve never been in that position but I watched a show the other day about two brothers in Hk. One was a real estate agent and the other a dentist. At 35 the agent had 7 paid off properties and the dentist had nothing
     
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  4. radioactive

    radioactive Well-Known Member

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    Stock Price is a Function of 3 primary things:

    1. PE Re-Rating (Valuation)
    2. Sustainable Earnings Growth
    3. Dividend Payout



    1) Valuation (PE Ratio’s) are largely a function of 3 primary things

    • Growth Rate of the Company (Opportunity Size)
    • Return on Capital Employed a business can generate
    • Interest Rates (Cost of Capital) and Sentiment (Liquidity)

    2) Sustainable Earnings Growth is again largely a function of 3 things

    • Volume Growth of the Product
    • Price Growth of the Product
    • Margin a business can generate

    3) Dividend Payout is again a function of 2 important things

    • Free Cash Flow a Company can Generate (ROE>Growth)
    • Reinvestment opportunities

    There is nothing more to stock Markets mathematically and the one who understands this understands everything to investing.
     
  5. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    Well, in terms of valuing stocks, there is also:

    (a) the present value of future cash flows (earnings);
    (b) a view on the quality of management;
    (c) bench-marking the PE ratio for the sector (retail, vs mining for example).

    So picking quality stocks is not perfectly quantitative as this post suggests, and there is the forward looking component. But yes, this is very useful. Thank you.

    Regarding growth vs income properties. It is still true that you should start with growing your capital base before worrying about income. Then shifting on to cash flow as your portfolio matures and you get older.

    One strategy that I use with clients is "pairing". Ie buying one of each with contrasting characteristics in the same markets. Ie one growth, one yield property, and maintaining balance that way.

    For the yield properties, I would still avoid regional and stick to metro areas. You can still find yield in the cities.